Biotech Execs Accused of Options Trick

NEWARK (CN) – Directors of biotech company Advaxis doubled their salaries by “blatantly” manipulating stock options to kick in just before positive news was announced, a shareholder claims in a derivative lawsuit. Among other things, Advaxis, a Delaware corporation based in Princeton, N.J., tries to develop cancer tumor therapies using Listeria monocytogenes-like organisms. It has 20 full-time employees, according to the Aug. 20 federal complaint. Advaxis also is seeking treatments for prostate and breast cancers, human and canine osteosarcoma and other cancers. It lead product, ADXS-HPV, is used to treat human papilloma virus. Shareholder David Bono claims the defendant directors “spring-loaded” their stock options, so they could exercise them at prices that preceded the release of good news. In March this year the board turned over administration of a newly adopted compensation plan to the Compensation Committee, which increased the equity granted to the defendants as part of their salary, according to the lawsuit. On the same day, the committee granted executives restricted stock units valued at $868,923 and stock options valued at $19 million. Nonexecutives had their compensation similarly modified, the complaint states. But with only 650,000 shares available, the plan fell drastically short of the 1.9 million shares the Compensation Committee wanted to grant, so it decided to make the awards contingent on stockholder approval, Bono says. “The Compensation Committee’s grant of stock awards contingent on a later stockholder approval was exceedingly strange,” the complaint states. “The reason for this move, however, became apparent over the next three weeks. During that period, the company released positive news three times that pushed its stock price to $23.61 per share, an increase of over $10 per share, a 75 percent jump.” The grantees got their awards at prices that preceded the stock jump, Bono says. A week after the new pay plan was adopted, the company announced that the first human study of its prostate cancer therapy was being evaluated, and the stock jumped almost $3 a share, Bono claims. He says the stock options were granted at fair market value, but the defendants knew that the news would boost prices, and when it did, the earnings of each member of the board doubled. “Thus, the board found a way around the purposes of granted stock options at fair market value.” Bono seeks disgorgement of unjust profits and restitution to shareholders. He also wants the company barred from paying directors with stock options, stronger controls and supervision, and wants shareholders to nominate at least three members to the board. He is represented by Justin Berardo with Callahan & Fusco, of Roseland, N.J.